Trowers & Hamlins

Sign up

Home » Resources » Blog » Procuring and Contracting for Social Value and Supply Chain Transparency:  CCEG Intangibles

Procuring and Contracting for Social Value and Supply Chain Transparency:  CCEG Intangibles
Trowers Public Insight

Procuring and Contracting for Social Value and Supply Chain Transparency:  CCEG Intangibles

The increasing prevalence of ethically and sustainably sourced products indicates consumer values influence supplier behaviour. Adverse media coverage of some international brands' alleged poor practices in their supply chains means citizens are realising "cheap is dear". However, is government?

First published in Social Value and Intangibles Review - April 2015

Historically, some governments have been reluctant to use sustainable or ethical procurement to achieve social and environmental objectives.  This perhaps stemmed from a perception that lowest cost procurement helped sustain competition in a free market economy but overlooked direct and indirect impact on the public purse including "intangibles".

There is no current legal definition of either ethical or sustainable procurement.  Ethical procurement tends to focus on progressive improvement of international standards such as: anti-bribery; corruption; fraud; and human rights abuses (for example, modern slavery).  

Sustainable procurement should secure environmental, social and/or economic improvements without compromising future needs. 

However, context is all. It is important to specify precisely how in relation to the subject matter of the particular contract an ethical or sustainable objective can realistically be achieved within the procurement process and resulting contract.

Context

We advise governments, over 200 UK local authorities, over 150 other contracting authorities and agencies, third sector organisations as well as the major suppliers to the public sector.  The contracts and procurement frameworks we advise on range across all sectors: facilities management, ICT, business processes, customer services, health and social care, leisure, transport, utilities and heritage.  Social and environmental considerations apply in all these sectors albeit in different contexts. 

FAQs

Typical questions procurement officers ask us are:

  • How can we promote diversity in our supplier base giving opportunities to SMEs and start-ups? 
  • Is it legal to require contractors to use products with eco labels or production practices which support biodiversity? 
  • Can we oblige our suppliers to pay a Living Wage and adopt fair employment practices?
  • How can we veto suppliers who have poor health and safety; engaged in corruption or collusion; failed to pay tax or social security contributions for their workforce or not complied with labour laws? 
  • In light of the Modern Slavery Act 2015 (MSA), how can we check no forced labour exists in contractors' supply chains?

Our answers to most of the above is: "Yes we can help you do this lawfully," but it is easier to achieve legal compliance if planned, trickier to retrofit into a procurement.

Government may no longer be fulfilling its legal duty to taxpayers if it procures solely on the basis of lowest price without factoring in ethical or sustainable considerations regardless of the product, works, services or utilities being bought.  A UK contracting authority which fails to have any regard to ethical considerations in its procurement process could arguably be vulnerable to legal challenge.

The reason behind this assertion is that there is now a plethora of European and domestic legislation imposing duties on contracting authorities regarding ethical and sustainability considerations.  This includes the European Public Procurement Directive 2014 (the Directive) implemented in the UK through the Public Contracts Regulations 2015 (PCR), preceded by the duties on public bodies via the Human Rights Act 1998, the Equality Act 2010, the Public Services (Social Value) Act 2012 (PSSVA). The MSA 2015 now supplements these.

Under the Directive there is a requirement on EU states "to take appropriate measures to ensure that in the performance of public contracts, economic operators comply with international, EU, national and collective agreement obligations in environmental, social and labour law".

The PCR 2015 implemented most of the Directive (but not all optional areas) into UK law from 26 February 2015.

The PSSVA requires authorities to consider how when procuring services, they can act to "improve the economic, social and environmental well-being of their area".  There has subsequently been a review of the efficacy of that legislation and a number of authorities are applying innovation in their procurements to achieve social, environmental and economic value, often with the aim of sustaining and revitalising local economies.

The recently enacted MSA 2005 imposes new duties on public authorities to co-operate with the Independent Anti-slavery Commissioner for the prevention, detection, investigation and prosecution of slavery and human trafficking. In the procurement context, large commercial organisations supplying goods or services (which may be to either the public or private sector) have to demonstrate transparency in their supply chains. 

This imposes a duty on large suppliers to prepare and publish anti-slavery and human trafficking statements (ASHTS).  A supplier has a legal duty to explain in its ASHTS how it ensures that there is no slavery or human trafficking within its supply chain or any part of its business or if the supplier has done nothing, then to state that.  Although there is no current explicit link between public procurement legislation and the MSA 2015, once the MSA has come fully into force one should expect that procurement officers will wish to evaluate the contents of a tenderer's ASHTS.

When can a contracting authority apply ethical/social and sustainability/environmental considerations within a procurement process and the subsequent contract?

Typically a procurement consists of:

  1. Market consultation and soft market testing;
  2. Advertisement;
  3. Assessment of bidders (pre tender);
  4. Shortlisting (if too many bidders);
  5. Bid evaluation;
  6. Contract award and management post award.

The PCR 2015 now allow contracting authorities to consult the market before publishing a formal advertisement in the Official Journal of the European Union (OJEU).  This is an opportunity to find out from prospective tenderers how social value could be delivered through the contract and to gauge potential interest levels from SMES, start-ups and suppliers who champion ethical values.

It is essential that social and environmental requirements are flagged up in the OJEU.  The new best price-quality ratio allows the contracting authority to take into account "other criteria" in particular, qualitative environmental and/or social aspects, linked to the subject matter of the contract.

The pre-tender phase consists of: assessing bidders' eligibility against exclusion criteria and assessing bidders' financial and professional suitability.

It is now mandatory for contracting authorities to exclude bidders where there is evidence of adverse judgments for conspiracy, corruption, bribery, fraud, money laundering, non-payment of taxes and social security.

The voluntary exclusion criteria which authorities may choose to apply include: conviction in conduct of the prospective tenderer's business; grave misconduct (which could include noncompliance with existing legislation (e.g. offences under the MSA 2015); evidence of non-payment of tax or social security contributions; violation of social and environmental laws; conflict of interest and/or poor performance history. 

In terms of professional suitability it is now possible for contracting authorities to require tenderers to produce certificates attesting compliance with quality assurance standards, including accessibility for disabled persons and environmental management systems.

Under the PCR 2015 UK authorities can use any criteria to evaluate a tender including social and  environmental criteria, provided the criteria are:

  • Linked to the purchase;
  • Comply with EU Law;
  • Evaluate the most economically advantageous tender (which could include lowest price – the UK government decided not to ban "price-only" criteria in the PCR, which sits somewhat at odds with other legislation);
  • Objective comparison of tenders would be practicably possible;
  • The evaluation criteria are not discriminatory under EU law; and
  • The tender evaluation criteria are pre published.

In summary, it is now possible and indeed encouraged by the UK Government to include evaluation criteria which take account of social aspects, trading conditions  and life cycle costing.

Still somewhat of a "minefield" legally is the issue as to the whether the contracting authorities can insist on the use of local labour or locally sourced products within their procurement.  In brief, my advice is that these objectives can be achieved but proceed with caution.  For further detail on this, refer to the LFIG Report "Socially Responsible Procurement" http://www.lfig.org March, 2015, pages 34 to 37 to which the author contributed. 

It is now lawful to apply evaluation criteria covering  fair employment practices, equality and diversity, incorporation of apprenticeships and skills training for long-term unemployed and or even the Living Wage.

The important issue here in the author's experience is to ensure that the social value or environmental requirement will be legally binding. 

Contract conditions may relate to economic, innovation-related, environmental, social or employment-related conditions provided they are non-discriminatory and relate to the contract subject matter and could cover:

  • compliance  with social, labour and environmental laws, international conventions on forced labour, child labour, minimum age, discrimination, equal pay, health and safety, and data protection/privacy requirements;
  • prohibition rights for abusive employment practices whether by the contractor or in its supply chain; and
  • obligations to address unemployment and engage apprentices.

Given the proximity of the forthcoming UK general election and some local authority elections, how policy will be implemented through procurement will depend on the political outcome.  One could envisage different procurement policies depending on whether the Scottish Nationalist Party, the Green Party or UKIP increase control or influence. 

Regardless, it is reasonable to assume that increasing citizen concern over environmental and climate change issues, distaste for abusive labour practices and focus on local sourcing and traceability will persist whatever the outcome of the elections and successful governments listen to their citizens.

Comments

No comments yet.

Add your comment Please login or register to comment on this post.